Phil Mattera

Pharma Fights to Preserve the Gravy Train

Big Pharma has been fleecing its U.S. customers for so long, the industry came to regard it as a right. That arrangement started to come to an end last year, at least as far as one large customer, the federal government, is concerned. The Inflation Reduction Act included a provision empowering Medicare to begin negotiating some drug prices in 2026.

One pharmaceutical giant has decided to fight to preserve the gravy train. Merck just filed a lawsuit challenging the law, claiming that the obligation to negotiate is an infringement of its constitutional rights. The company argues that its Fifth Amendment protection against government seizure of private property would be violated. It also says that having to sign an agreement reached after negotiation would trample its First Amendment free speech rights.

The Fifth Amendment takings argument is a favorite position of conservatives in opposing all manner of government regulation, but the obligation to negotiate prices is not regulation. It is actually a free market correction to the absurd restrictions that have long existed on the ability of Medicare to bring drug prices back down to earth. The First Amendment argument is laughable.

It is not surprising that Merck would try its chances in court once its lobbying efforts against the law failed. The company has a lot at stake. It rakes in several billion dollars of revenue each year from the sale of diabetes and cancer medications through Medicare plans. Even if its lawsuit initially fails, Merck presumably hopes it will receive a more sympathetic hearing if the case reaches the corporate-friendly Supreme Court.

Freedom from having to negotiate with Medicare is not the only way in which Big Pharma has managed to evade competition. As I described in a report on antitrust cases published in April, drug companies have repeatedly been caught engaging in illegal schemes to block the introduction of lower-cost generic alternatives to their brand-name medications. Since 2000 the industry has paid a total of $10 billion in fines and settlements in these pay-to-delay cases.

Merck is one of those firms implicated in this practice. For example, in 2017 it agreed to pay $60 million to settle class action litigation alleging that its subsidiary Schering-Plough had taken improper actions to block the introduction of a generic version of K- Dur, which is used to treat potassium deficiencies.

Along with anti-competitive behavior, the pharmaceutical industry has a record of questionable practices in its dealings with the federal government. Merck alone has paid nearly $800 million in fines and settlements relating to alleged violations of the False Claims Act. For example, in 2008 it agreed to pay $650 million to resolve allegations that it failed to pay proper rebates to Medicaid and other government health care programs and paid illegal remuneration to health care providers to induce them to prescribe the company’s products.

These forms of misconduct, along with the immunity from having to negotiate prices with Medicare, have for too long given the drug companies the upper hand in their dealings with the federal government. The Inflation Reduction Act takes an important first step toward correcting that situation. It would be a shame if the courts turn back the clock.

Note: Corporate Crime Reporter reports that the Justice Department has quietly introduced a search engine covering its actions against business entities and individuals. As of this writing, the Corporate Crime Case Database contains only 11 entries but more is promised.

More Compliance Officers, Less Compliance

It appears these are boom times for corporate compliance officers. According to an article in Law360, a recent survey by the recruiting firm BarkerGilmore found that that “the demand for compliance talent is higher than ever because of an evolving list of new requirements like environmental, social and governance programs; enterprise risk management and new work culture brought on by post-pandemic norms.” Pay is also rising rapidly for these officers.

This is all good news for those who want to make a career of helping corporations deal with government regulations, but what does it mean for compliance itself? Does the inclination of big business to spend more on this function indicate that corporate behavior is improving?

Based on the data collected in Violation Tracker, that does not seem to be the case. Fines and settlements in the U.S. in 2022 climbed to over $69 billion, the highest annual total in seven years. Over the entire span of time covered by the database, which extends back to 2000, the only higher totals occurred in the mid-2010s, when the annual tallies reached as high as $77 billion due to giant settlements by the likes of BP in connection with the Deepwater Horizon disaster and by the major banks in connection with the mortgage and toxic securities crises.

Last year also saw a jump in the average penalty paid per case. That figure was $2.5 million, up from $2 million the year before. Aside from the $2.9 million average in 2020, last year’s amount was the highest since 2015.

Another indicator that 2022 was a banner year for penalties can be seen in the number of individual parent companies which paid a massive amount–$100 million or more–in fines and settlements. Sixty-three parents gained that dubious distinction, the highest number since 2015.

Included in that group were eleven companies with penalties of $1 billion or more: Allianz, Walgreens Boots Alliance, CVS Health, Teva Pharmaceutical Industries, Wells Fargo, Walmart, AbbVie, Danske Bank, Navient, Bayer and Glencore.

What does it say that penalties are accelerating at the same time that corporations are purportedly putting more resources into compliance? One possibility is that the increasing use of compliance officers is merely window dressing, a gesture meant to satisfy investors concerned about social responsibility. These officers may have little power and influence. They can warn managers about regulatory risks but may have little ability to change behavior that is illicit but profitable.

A more charitable interpretation would be that compliance officers are bringing more violations to light by encouraging companies to self-report infractions. This, in turn, could contribute to increases in overall penalty levels.

This would be a hopeful sign if it meant that companies were at the same time cleaning up their behavior. The problem is that recidivism shows no signs of receding. Year after year, most large companies go on breaking the rules and treating penalties as an affordable cost of doing business as usual.

If compliance officers could do something about that, they would truly be earning their rising pay.

Targeting the Infant Formula Giants

The Agriculture Department’s Women, Infants and Children (WIC) program is one of the many forms of social assistance that could be seriously affected by Republican efforts to cut supposedly wasteful federal spending as a condition of approving an increase in the debt ceiling.

If there is waste in WIC, it’s not being caused by the low-income women receiving nutritional aid. A more likely culprit are the corporations providing the infant formula distributed through the program.

The Federal Trade Commission has revealed that it is investigating whether suppliers have been colluding in their bids for contracts awarded by the state agencies that administer WIC. Any such collusion would be made easier by the fact that the infant formula market in general and the WIC portion of it are dominated by three large companies.

Two of the three—Abbott Laboratories, which produces the Similac brand, and Nestlé, which sells the Gerber brand—have acknowledged that they are involved in the investigation, while Reckitt Benckiser has declined to comment.

This is not the first time these companies have come under regulatory scrutiny. Back in 2003 Abbott and a subsidiary paid a total of $600 million in civil and criminal penalties to resolve charges that the company made illegal payments to institutional purchasers of its tube-feeding products and then encouraged the customers to overbill government health programs.

Over the past two decades, Abbott and various subsidiaries have paid another $98 million in various False Claims Act cases brought by federal and state prosecutors. This does not include hundreds of millions more paid in false claims and antitrust penalties by the portions of Abbott that were spun off as AbbVie in 2013.

Nestlé’s infant formula business has a history of controversy for another reason. During the mid-1970s Nestlé was made the target of a campaign protesting the marketing of infant formula in poor countries. Activists from organizations such as INFACT and progressive religious groups charged that the aggressive marketing of formula by companies like Nestlé was causing health problems, in that poor mothers often had to combine the powder with unclean water and frequently diluted the expensive formula so much that babies remained malnourished.

Nestlé initially responded to the boycott of its products with a counter-campaign, seeking to discredit its critics. The company later changed its posture, agreeing to comply with a marketing code issued by the World Health Organization. In the years that followed, Nestlé was frequently criticized for failing to comply with the code and for engaging in various questionable practices.

In 2019 Reckitt Benckiser, based in the United Kingdom, paid over $1.3 billion in penalties in connection with the improper marketing of the opioid Suboxone. It paid another $50 million to the FTC to resolve allegations of engaging in a deceptive scheme to thwart the introduction of a low-cost generic alternative to that drug.

Reckitt entered the infant formula business through the 2017 acquisition of Mead Johnson, producer of Enfamil. In 2012 Mead Johnson had paid $12 million to settle allegations by the SEC that the company violated the Foreign Corrupt Practices Act through improper payments to healthcare professionals at government-run hospitals in China.

Given these rap sheets, along with controversies over recalls and shortages, it will not come as a surprise if the FTC finds that these companies engaged in bid-rigging. The remedy should involve an effort to attract more suppliers to the WIC infant formula market, especially honest ones.

Wells Fargo Pays More for Its Sins

When the Consumer Financial Protection Bureau announced in 2016 that it was fining Wells Fargo $100 million for creating fee-generating customer accounts without permission, bank executives may have thought they could simply pay the penalty and move on.

Instead, Wells has had to contend with a series of regulatory and legal consequences. The latest is a $1 billion settlement the bank has just agreed to pay to resolve a class action lawsuit brought by shareholders accusing it of misrepresenting the progress it had made in improving its internal controls and compliance practices. The deal ranks among the largest securities settlements of all time.

In between the initial CFPB action and the new lawsuit resolution, Wells confronted the following:

In 2018 the Federal Reserve forced out several board members and took the unusual step of barring Wells from growing in size until it improved its compliance. It is telling that the asset cap is still in place.
That same year, Wells paid $575 million to settle litigation over the bogus accounts brought by state attorneys general.
In 2020 the U.S. Justice Department announced that Wells would pay $3 billion to resolve potential criminal and civil liability, but the bank was allowed to enter into a deferred prosecution agreement rather than having to plead guilty. The Trump DOJ also declined to bring charges against any individual executives.

While the monetary penalties paid by Wells are not trivial, they are far from punishing for an institution with nearly $2 trillion in assets and $13 billion in annual profits. They also do not seem to have had much of a deterrent effect.

In 2022 the CFPB took new action against the bank, compelling it to pay a $1.7 billion penalty and provide $2 billion in redress to customers to resolve allegations that it engaged in a variety of new misconduct. Wells was found to have repeatedly misapplied loan payments, wrongfully foreclosed on homes, improperly repossessed vehicles, and incorrectly assessed interest and fees, including surprise overdraft charges. Some 16 million customer accounts were said to have been cheated one way or another.

That 2020 deferred prosecution agreement means that Wells has in effect been on probation. Why, in light of the CFPB case, has the bank not been found to be in violation of that agreement? Is it simply because Wells is now focusing its alleged misconduct on real accounts rather than the fake ones it had been creating? That would be like letting a mugger off the hook for using a knife rather than gun.

Not only should Wells have its probation revoked, but it should undergo something analogous to what the FDIC does when a bank is in financial disarray. Federal regulators should find Wells to be in ethical disarray and take it over while fundamental changes are made to bring it back to some semblance of compliance.

The alternative is letting a rogue institution continue to prey on its customers in any way it can.

Goldman Gives In

The verdict in the Trump case was not the only court victory against sexism this week. Lawyers for women who worked in securities and investment banking positions at Goldman Sachs announced that the Wall Street giant has agreed to pay $215 million to settle a long-running gender discrimination case.

Some 2,800 current and former employees at Goldman will share in the settlement, which resolves a case first filed back in 2010. Along with the payout, the company will take steps to improve gender equity in pay and promotions.

For years, Goldman strenuously denied allegations that its personnel evaluation system systematically placed women at lower rankings than men, and it aggressively sought to reverse the certification of the class in 2018. Those efforts were unsuccessful, eventually resulting in the scheduling of a trial in June of this year. Trials are rare in discrimination class actions, since juries are thought to be more sympathetic to plaintiffs.

Goldman finally decided to give in, becoming the latest large company to settle a class action gender discrimination lawsuit. Other cases during the past two decades documented in Violation Tracker include the following:

In 2022 Sterling Jewelers paid $175 million to settle litigation alleging that for years it had discriminated against tens of thousands of women in its pay and promotion practices.
In 2010 drug giant Novartis paid $175 million to settle charges of gender discrimination, including pregnancy discrimination.
In 2022 Google agreed to pay $118 million to settle class action litigation alleging it discriminated against women in its salary practices.
In 2007 Morgan Stanley paid $46 million to a class of about 3,000 women to settle gender discrimination allegations.
In 2018 the retail chain Family Dollar paid $45 million to more than 37,000 former and current managers who alleged they were paid less than their male counterparts. That case took nearly 15 years to get resolved.
In 2004 Boeing paid more than $40 million to a class of female workers who alleged they were denied desirable job assignments, promotional opportunities, and management positions.
In 2013 Merrill Lynch paid more than $38 million to a group of women employed as financial advisors who said they were discriminated against in pay and promotion.
In 2014 United Airlines paid $36.5 million to settle a lawsuit alleging that the company engaged in gender discrimination by requiring female flight attendants to weigh less than comparable male ones.
In 2008 Smith Barney paid $33 million to women formerly employed as financial advisors who claimed they were paid less than their male counterparts.
In 2011 Wells Fargo paid $32 million to settle a lawsuit alleging that its Wachovia Securities subsidiary gave female financial advisers fewer opportunities than their male co-workers with respect to promotions, assignments, signing bonuses and compensation.

What this list show is that gender discrimination has been an issue in a wide range of companies and occupations, but sexism has been especially problematic in the traditionally macho world of Wall Street. Now that perhaps the most elite firm in the industry has capitulated, the worst abuses may finally come to an end.

Rogue Rescuer

Once again federal regulators have turned to JPMorgan Chase to rescue a failing smaller bank. For the moment, the customers of First Republic Bank may be pleased that their accounts are being taken over by a larger and more stable institution.

Yet they may not be quite so happy to learn that their savior has a much worse record when it comes to compliance with laws and regulations. As shown in Violation Tracker, First Republic was named in only a handful of enforcement actions and paid penalties of less than $4 million. JPMorgan, on the other hand, has 236 Violation Tracker entries and has paid over $36 billion in fines and settlements.

The contrast with First Republic is partly a matter of size. JPM’s vast operations give it many more opportunities to get into trouble. Those operations have included the marketing of residential mortgage-backed securities which turned out to be toxic and which resulted in legal actions that cost the company billions. Some of these entanglements were inherited by JPM when it took over Bear Stearns and Washington Mutual in 2008.

Yet JPM has also had problems when it comes to the treatment of its own customers in the course of routine banking functions. This has become clear to me in the course of assembling data for the latest category of class action litigation to be added to Violation Tracker: consumer protection lawsuits.

The collection is not yet done, but I have already identified more than a dozen settlements in which JPM has paid out hundreds of millions of dollars. Among these are the following:

* In 2012 JPM agreed to pay $100 million to settle litigation alleging it improperly raised interest rates on loan balances transferred to credit cards.

* In 2020 JPM agreed to pay more than $60 million to settle litigation alleging it overcharged customers serving in the military, in violation of the Servicemembers Civil Relief Act.

* In 2014 JPM agreed to pay $300 million to settle litigation alleging it pushed mortgage borrowers into force-placed insurance coverage whose cost was inflated due to kickbacks.

* In 2012 JPM agreed to pay $110 million to settle litigation concerning improper overdraft fees resulting from the way that debit-card transactions were processed.

* In 2011 JPM agreed to pay up to $7.8 million to settle litigation alleging it charged credit card customers hidden fees after deceptively marketing special deals on balance transfers and short-term check loans.

* In 2014 JPM and several subsidiaries agreed to pay more than $18 million to settle litigation alleging the use of misleading loan documents to steer borrowers to adjustable-rate mortgages.

* In 2018 JPM agreed to pay over $11 million to settle litigation alleging it improperly charged interest on Federal Housing Administration-insured mortgages that were already paid off.

These were all cases brought by private plaintiffs. JPM also paid hundreds of millions more in consumer protection fines and settlements to federal and state agencies. Among these was a 2013 case brought by the Consumer Financial Protection Bureau in which JPM paid a $20 million penalty to the agency and over $300 million in refunds to two million customers for what were said to be illegal credit card practices.

There is widespread concern that rescue deals are allowing a too-big-to-fail bank like JPM to grow even larger. Yet we should also worry that more and more of the population is being forced to do business with megabanks that seem to regard themselves as too big to have to comply with laws that protect consumers.

Corporate Miscreants Foreign and Domestic

The Biden Administration appears to be really serious about economic sanctions–and not only those against Russia. The Justice Department and Treasury just imposed more than $600 million in penalties on British American Tobacco for violating prohibitions on doing business with North Korea.

Aside from the unusually harsh approach toward a product, tobacco, which does not have any obvious national security implications, the case is significant because it continues the administration’s seeming preoccupation with going after large corporations based outside the United States.

If we look at the largest fines and settlements –say, those above $200 million– announced since Biden took office and documented in Violation Tracker, most of them involve foreign companies. Aside from BAT, these include Germany’s Allianz, Denmark’s Danske Bank, Switzerland’s Glencore and ABB, Holland’s Stellantis, Sweden’s Ericsson, India’s Sun Pharmaceuticals and the United Kingdom’s Barclays.

These cases certainly have their merits, but it is surprising that there have been so few comparable actions announced against domestic corporations. Corporate crime and misconduct are not exclusively or even primarily an issue with companies based abroad.

After Biden was elected there was an assumption that the lax enforcement practices seen during the Trump years would disappear. A major crackdown has yet to materialize. Instead, the Justice Department has focused on finding ways to incentivize companies to cooperate with investigations.

There is no explicit policy to this effect, but it appears that prosecutors are going easier on domestic corporate targets while acting tougher with foreign ones. One gets the impression that business oversight is being used in a way to give domestic companies a competitive advantage.

This would be in keeping with the Biden Administration’s efforts to promote domestic manufacturing through legislation such as the CHIPS Act and Buy American policies. Yet there is a difference between industrial policy and regulatory policy.

Although those on the Right complain when they think government is picking winners and losers, that actually goes on all the time when tax policy is written or major procurement contracts are awarded. The legal system is another matter.

Every company, wherever it is headquartered, deserves equal treatment under the law. At the same time, the public deserves to be protected against misdeeds committed by domestic and foreign business entities.

Given that U.S.-based companies are likely to do more of their business in this country, any policy of regulating them more lightly would be especially problematic. Some of the offenses charged against foreign corporations– such as bribery committed abroad– mean a lot less to U.S. residents than serious environmental, financial or workplace transgressions that may be committed by domestic firms.

None of this should be taken as a call for retreating from enforcement actions against foreign companies. Nonetheless, it would be satisfying to see the Biden Administration bring more major cases against homegrown corporate miscreants.

Conspiring Against Competition

A federal judge in Minnesota recently granted final approval to a $75 million settlement between Smithfield Foods and plaintiffs alleging that the company was part of a conspiracy to fix the prices of pork products. This came a week after the Washington State Attorney General announced $35 million in settlements with a group of poultry processors.

A couple of weeks ago, a federal judge in New York approved a $56 million settlement of a class action lawsuit in which two drug companies were accused of conspiring to delay the introduction of a lower-cost generic version of an expensive drug for treating Alzheimer’s Disease.

All these court actions are part of an ongoing wave of illegal price-fixing conspiracies by large companies throughout most of the U.S. business world. The scope of the antitrust violations is revealed in a report I just published with my colleagues at the Corporate Research Project of Good Jobs First. The report, entitled Conspiring Against Competition, draws on data collected from government agency announcements and court records for inclusion in the Violation Tracker database.

We looked at over 2,000 cases resolved over the past two decades, including 600 brought by federal and state prosecutors as well as 1,400 class action and multidistrict private lawsuits. The corporations named in these cases paid a total of $96 billion in fines and settlements.

Over one-third of that total was paid by banks and investment firms, mainly to resolve claims that they schemed to rig interest-rate benchmarks such as LIBOR. The second most penalized industry, at $11 billion, is pharmaceuticals, due largely to owners of brand-name drugs accused of illegally conspiring to block the introduction of lower-cost generic alternatives.

Price-fixing happens most frequently in business-to-business transactions, though the higher costs are often passed on to consumers. Apart from finance and pharmaceuticals, the industries high on the penalty list include: electronic components ($8.6 billion in penalties), automotive parts ($5.3 billion), power generation ($5 billion), chemicals ($3.9 billion), healthcare services ($3.5 billion) and freight services ($3.4 billion).

Nineteen companies (or their subsidiaries) paid $1 billion or more each in price-fixing penalties. At the top of this list are: Visa Inc. ($6.2 billion), Deutsche Bank ($3.8 billion), Barclays ($3.2 billion), MasterCard ($3.2 billion) and Citigroup ($2.7 billion).

The most heavily penalized non-financial company is Teva Pharmaceutical Industries, which with its subsidiaries has shelled out $2.6 billion in multiple generic-delay cases.

Many of the defendants in price-fixing cases are subsidiaries of foreign-based corporations. They account for 57% of the cases we documented and 49% of the penalty dollars. The country with the largest share of those penalties is the United Kingdom, largely because of big banks such as Barclays (in the interest-rate benchmark cases) and pharmaceutical companies such as GlaxoSmithKline (in generic-delay cases).

Along with alleged conspiracies to raise the prices of goods and services, the report reviews litigation involving schemes to depress wages or salaries. These include cases in which employers such as poultry processors were accused of colluding to fix wage rates as well as ones in which companies entered into agreements not to hire people who were working for each other. These no-poach agreements inhibit worker mobility and tend to depress pay levels—similar to the effect of non-compete agreements employers often compel workers to sign.

Despite the billions of dollars corporations have paid in fines and settlements, price-fixing scandals continue to emerge on a regular basis, and numerous large corporations have been named in repeated cases.

Higher penalties could help reduce recidivism, but putting a real dent in price-fixing will probably require aggressive steps to deal with the underlying structural reality that makes it more likely to occur: excessive market concentration.

Pay for Delay

Forty years ago, federal policymakers thought they had found a solution to the problem of escalating prescription drug prices. The Hatch-Waxman Act of 1984 made it easier for generic manufacturers to bring to market lower-cost alternatives to brand-name medicines whose patent protection was expiring.

Fast forward to 2023. Recently, a federal judge in New York approved a $54 million class action settlement between plaintiffs led by a police union health plan and two drug companies accused of participating in an improper agreement to delay the introduction of a generic version of the Alzheimer’s drug Namenda. In 2020 another group of plaintiffs in a related case received a settlement of $750 million.

Once hailed as heroes that would restore consumer-friendly competition to the pharmaceutical industry, many generic producers instead became conspirators in what are known as “pay for delay” schemes to extend the market domination of costly brand-name products.

The extent of this degeneration is documented in data I have been collecting for an expansion of Violation Tracker and that will be analyzed in a report to be published next week. That expansion covers class action lawsuits designed to combat illegal price-fixing by large companies in a wide range of industries. This private litigation often follows actions brought by federal and state prosecutors.

Cases involving pay for delay, which amounts to an indirect form of price-fixing, make up a substantial portion of the litigation challenging anti-competitive practices. I was able to identify more than 100 settlements over the past two decades in which generic and brand-name producers paid out nearly $8 billion. Cases brought by federal agencies or state attorneys general resulted in another $2 billion in fines and settlements.

The company that has paid out the most is generics giant Teva Pharmaceuticals, whose 19 settlements (including those involving subsidiaries) total $2.5 billion. AbbVie’s total is $1.5 billion in 21 cases. Five other companies—GlaxoSmithKline, Sun Pharmaceuticals, Pfizer, Novartis and Bristol-Myers Squibb each have totals between $500 million and $800 million.

The largest single penalty came in 2015 in an action brought by the Federal Trade Commission accusing Cephalon Inc. of illegally blocking generic competition to its blockbuster sleep-disorder drug Provigil. The settlement required Teva Pharmaceuticals, which had acquired Cephalon in 2012, to make a total of $1.2 billion available to compensate purchasers, including drug wholesalers, pharmacies, and insurers, which overpaid because of Cephalon’s illegal conduct.

High drug costs are one of the factors contributing to inflation in the United States. Unlike energy prices, which are highly susceptible to swings in international markets, drug prices are largely under the control of manufacturers, due to patents and the unwillingness (until recently) of the federal government to allow Medicare to negotiate with the industry.

Big Pharma, not satisfied with those benefits, has frequently crossed the line into illegality through these pay-for-delay schemes. The $10 billion in penalties paid by the industry is in all likelihood far less than the economic gains it has reaped by artificially prolonging the market life of overpriced medications. It’s something to keep in mind during the next expensive visit to the pharmacy.

The report, Conspiring Against Competition, will be published on April 18.

The Two Faces of Howard Schultz

One person from Starbucks responded to a subpoena from Senate labor committee chair Bernie Sanders, but there seemed to be two versions of Howard Schultz at the witness table.

Schultz number one was the typical anti-union corporate executive. Despite the vast number of unfair labor practice charges that have been filed by Starbucks workers, many of which have been sustained by NLRB administrative law judges, he insisted the company has done nothing wrong. Accused of failing to bargain in good faith at the locations where employees have voted for representation, he blamed the union.

While giving gave lip service to the idea that workers have a right to seek union representation, Schultz added that “the company has a right to express a preference.” Not only does such a right not exist, but Starbucks has, as fired activist Jaysin Saxton testified at the hearing, gone far beyond stating its opinion. It stands accused of using many classic union-busting tactics as well as new ones such as refusing to allow credit card tipping at pro-union locations.

The other Howard Schultz tried to portray himself as a model employer, insisting that Starbucks offers much better pay and benefits than its competitors in the retail sector. Even if there is some truth in this, it is not saying much that you treat your workforce a bit better than Walmart and McDonald’s.

This Schultz argued that unionization might be appropriate at companies that treat their workers unfairly, but not at a supposedly enlightened one like Starbucks. What he could not seem to comprehend is that as much as the company claims to value and respect its green-aproned “partners,” they may want to relate to management on a more equal footing.

If Starbucks really believed in employee empowerment, it would have adopted a neutral stance toward unionization, as Microsoft did in response to the union push at Activision Blizzard. Instead, it has resorted to retrograde anti-union practices that strengthen the case for collective bargaining.

This approach throws into question the idea that Starbucks is a high-road company. Despite its carefully cultivated reputation, there have long been signs of questionable policies at the coffee chain. Some of these can be seen in the Starbucks entries in Violation Tracker, which documents more than $50 million in penalties over the past two decades. Almost all of these are employment-related.

For example: in 2013 the company agreed to pay $3 million to settle litigation alleging it denied baristas their right under California law to take uninterrupted meal breaks. Starbucks has paid millions of dollars to settle lawsuits accusing it of improperly classifying employees such as assistant store managers as exempt from overtime pay. In 2019 the company paid $176,000 to state and local agencies in New York to settle allegations it improperly penalized employees who could not find a substitute when they needed to take a sick day.

Long-standing problems such as these, along with its more recent repressive practices, suggest that Starbucks may not be such a paragon of corporate virtue after all. In fact, it may very well be one of those unfair employers that even Howard Schultz admits should be unionized.